Oct. 30, 2022
October 30, 2022 Thank you for this opportunity to address the SECs proposal to require public position reporting of large security-based swap positions. The SEC proposes to require next-day public disclosure of the holding of security-based swaps above very low thresholds. This would not pose an existential threat to the activist investors business model because it would not eliminate the ability to assemble an economically viable position at the prices the companys underperformance has caused since the position would have and should have been taken. The proposed rules will not deprive anyone of the economic benefit. 1. The Proposed Rule would NOT disincentivize activism, diminish market efficiency, and be anti-competitive. a. Activism plays a critical role in the health of the U.S. capital markets by helping ensure alignment between shareholders and boards of directors. The role of activists has become more important over time as the rise of passive ownership has diminished the few remaining checks and balances on public companies. Activist investors play an essential role in the public markets by providing a check on underperforming, unresponsive or entrenched corporate management and boards in ways that passive investors (such as index funds) cannot and will not. The U.S. capital markets are more vibrant and dynamic than others because companies in the U.S. can be held to account by activists, who are often the only shareholders who have the resources and incentive to make themselves heard by management and cause positive change. b. We are aware of claimsoften expressed by parties representing the interests of management and boardsthat activism does not benefit markets and shareholders. We believe the benefits of activism are well established, but our point in noting this divergence of views is that the Commission should not in effect choose a side in this debate, which we believe the Proposed Rule effectively does. Certain companies, and their management and boards, may in fact support that outcome, and that is an appropriate justification for the Proposed Rule, and such an outcome would be consistent with the Commissions obligation to maintain neutrality in exercising its authority under the Exchange Act. It would also be consistent with the Commissions guiding objective of protecting investors. d. If an activist with a successful track record of creating sustainable value is forced to make a public disclosure prematurely, then herding behavior by new entrants into the stock may make the securities too expensive, preventing an economically worthwhile position from being built and thereby pricing the activist out of the investment. But this can be easily resolved if the activist is confident in his research and entered his positions in advance of that disclosure. The Proposed Rule would not reveal the proprietary business strategies of large traders to the market and to competitors (and in the case of activist investors, to the companies that are the focus of their interest at a far earlier time than would otherwise be the case). Copycat trading would not reduce profitability and the incentives to take on such activities as the activist should have already entered his position. This does not harm efficiency and also would improve competition as some market participants decide to exit.